Moody's Whistleblower Says Inflated Ratings Still Happening

Moody’s (MCO) has a whistleblower, and he’s about to become a folk-hero in Congress:

WSJ: Despite months of regulatory scrutiny and some internal changes at the firms, a recently departed Moody’s Corp. analyst says inflated ratings are still being issued. He has taken his concerns to congressional investigators.

The analyst, Eric Kolchinsky, said Moody’s Investors Service gave a high rating to a complicated debt security in January 2009 knowing that it was planning to downgrade assets that backed the securities. Within months, the securities were put on review for a downgrade.

“Moody’s issued an opinion which was known to be wrong,” Mr. Kolchinsky wrote in a July letter to the rating firm’s chief compliance officer, a copy of which was reviewed by The Wall Street Journal. In the letter, Mr. Kolchinsky cited other instances in which he believes inflated ratings were given to securities.

A Moody’s spokesman says the firm “takes any allegations of misconduct very seriously.” The spokesman said Mr. Kolchinsky “refused to cooperate with an investigation” into the issues he raised and was suspended for this refusal, with pay.

For what it’s worth, Kolchinsky — who will testify to Congress on Thursday — wasn’t involved in ratings at the end of his tenure, though he had been for six years.

There are more specifics about his frustrations with the company in the article, though it seems that for the past few years he’s had a tense relationship with management — he complaining about ratings, and them complaining about his behaviour and performance.